Austrian Monetary Theory Seminar (Part III)

In this seminar, Lawrence White gives an insight in the Austrian Monetary Theory, which includes the ideas of the two most representative of the Austrian School of Economics, Mises and Hayek. It explains how economy works with government intervention and why having no government intervention is the way to go.

In this third session, White presents a reasonable case for restoring the gold standard, which is a traditional topic in the Austrian Monetary Theory.

Fairly general, the gold standard is a monetary system which gold denominates prices. Money is meaningfully denominated in gold, which means: gold is the medium of account and the medium of redemption (for bank-issued notes and deposits).

The gold standard encourages capital accumulation.”

The quantity of money, in a gold standard or any commodity standard, is regulated by the market that produces the gold/commodity. It will be distributed amongst regions depending on their demand. This adjustment happens via Price specie flow system.

The purchasing power of gold is more steady than the purchasing power of fiat money.”

White defends the freely evolved banking systems, whereas like any other business, there’s incentives to offer better services in the market in order to keep in the competition. Gold redeemable notes can be privately produced, which as Mises uphold the possibility on self-regulation of bank issues under competitive banking.

The public is better served by competition than by monopoly”.

To summarize, White ends up discussing the practical merits and benefits of a gold standard by contrast to fiat standards; which are: lower mean inflation (and expected inflation), lower price level uncertainty at a medium to long horizons, global currency network benefits and establishes a fiscal discipline to the central banks.